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The steady performer
No plans to merge with HDFC Bank as of now as both businesses growing successfully separately.
No immediate needs for capital.
Lack of clarity on FDI resulting in indecision on listing insurance subsidiary.
Although rate hikes have been sharp, the company is only 25bps higher than 2008 levels and hence demand unlikely to be
affected even after another 25-50bps of rate hikes; Key concern is real estate property prices which are unaffordable.
Property prices likely to correct triggered by liquidity crunch faced by developers as banks have become more
conservative lenders; NPLs for non-individual loans at 45bps.
Expect spreads to correct slightly to 2.25% in 4Q vs. 2.3% currently.
Exposure to scam-hit companies is limited to two out of 23 named.
Valuation and risks
We value HDFC using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%).
HDFC is currently trading at 21x PE and 4.6x PB. Our target PE and PB multiples are at 24x and 5x. We expect FY11-13e
EPS CAGR of 19%, ROA to increase to 2.9% from 2.7%, and ROE to improve to 23.6% from 21.5%.
Downside risks: 1) Further liquidity tightness and increase in rates could slow business momentum; 2) asset quality risks.
Visit http://indiaer.blogspot.com/ for complete details �� ��
The steady performer
No plans to merge with HDFC Bank as of now as both businesses growing successfully separately.
No immediate needs for capital.
Lack of clarity on FDI resulting in indecision on listing insurance subsidiary.
Although rate hikes have been sharp, the company is only 25bps higher than 2008 levels and hence demand unlikely to be
affected even after another 25-50bps of rate hikes; Key concern is real estate property prices which are unaffordable.
Property prices likely to correct triggered by liquidity crunch faced by developers as banks have become more
conservative lenders; NPLs for non-individual loans at 45bps.
Expect spreads to correct slightly to 2.25% in 4Q vs. 2.3% currently.
Exposure to scam-hit companies is limited to two out of 23 named.
Valuation and risks
We value HDFC using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%).
HDFC is currently trading at 21x PE and 4.6x PB. Our target PE and PB multiples are at 24x and 5x. We expect FY11-13e
EPS CAGR of 19%, ROA to increase to 2.9% from 2.7%, and ROE to improve to 23.6% from 21.5%.
Downside risks: 1) Further liquidity tightness and increase in rates could slow business momentum; 2) asset quality risks.
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